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Wednesday, February 28, 2001
Long-standing fight between Lauder and Zelezny over TV Nova switches into high gear
By Lisa Gonderinger
For the residents of the quiet French village of Langourian, the carting away of a piano on Feb. 19 might have gone largely unnoticed.
A few countries to the east, it struck a major chord. The piano was seized from a chateau tied to feisty media tycoon Vladimir Zelezny.
For the first time in two years, after months of high-profile legal and verbal wrangling, the struggle between Zelezny and his former American business partner Ronald Lauder over the destiny of the country's largest television station, TV Nova, acquired a tangible edge.
On Feb. 9, a Paris-based International Court of Arbitration ordered Zelezny to pay Lauder's Central European Media Enterprises (CME) $27.1 million (1 billion Kc) in damages. The ruling was one round in a bout that includes some 40 legal claims.
In the Paris tussle, Zelezny was ruled to have violated a noncompetition clause.
CME didn't waste any time in pushing French and Czech courts to freeze, and even start seizing, Zelezny's assets.
"We need to hold them as collateral," said Michal Donath, CME spokesman. "We haven't heard from Mr. Zelezny since the ruling. Our concern is damage control."
But even with the piano safely stashed away and other items of Zelezny's likely to suffer the same fate, Lauder's organization was hardly through the legal tunnel.
Another major battle begins Monday, March 5 in London, when Lauder personally takes the Czech state to court. In a $500 million lawsuit, he charges that Prague helped the politically savvy Zelezny hijack TV Nova, undermining Lauder's foreign investment.
The London ruling has broad implications. Its outcome may reflect the extent to which the region has escaped its "Wild East" reputation. Both businessmen and politicians are expected to watch it closely.
The battle may touch another raw nerve: the relationship between political parties and television, considered a bellwether for Czech entry into the European Union.
A recent six-week strike by Czech Television journalists protesting what they labeled government heavy-handedness in picking upper management drew international attention.
But from the Czech Republic's vantage point, the Lauder-Zelezny disagreement is rooted in shaping the country's broadcasting future, without the influence of foreigners.
Rosy beginnings
A former U.S. ambassador to Austria in the waning days of the Cold War, Lauder started CME in hopes of bringing the concept of U.S. television culture to Eastern Europe.
The company, which was once traded on the Nasdaq stock exchange, also broadcasts in Slovenia, Slovakia, Romania and Ukraine.
To enter the Czech market, the company needed a local insider, since the government forbids foreigners from holding a broadcast license.
In 1994, Lauder, heir to the Estee Lauder cosmetics fortune, met Zelezny, a promising businessman who was an editor at state-run Czech TV during underground anti-Soviet broadcasts in 1968, and served as spokesman for the post-communist government. The two combined their connections and cash to launch the country's first private TV station, known as Nova.
A strong start
Nova soon dominated the airwaves with offerings like Baywatch and reruns of Dallas. Swiftly, it became the only profitable venture in CME's holdings; it remains hugely successful, attracting 47 percent of the country's viewers.
But relations between Lauder and Zelezny soured when Zelezny's controversial political TV shows and financial deals threatened to tarnish Nova's reputation.
In April 1999, after more than five years in the post, Zelezny was removed as director of Lauder's Czech Independent Television Society (CNTS). He also lost his job as host of the public affairs show "Call the Director."
But he still held the vital broadcasting license, which he owned through his CET 21 company. In June, TV Nova watchers were stunned when CET 21 pulled the plug on CNTS, and screens went blank for about 25 minutes. Afterward, viewers saw a message blaming the blackout on a "pirate broadcast."
By August, Zelezny had created a "shadow" TV Nova. He shifted production and broadcasting from CNTS' studio to his new CET 21 studio. The next month, CNTS laid off most of its staff.
The takeover infuriated Lauder. Both sides argued over who breached the contract, and each side accused the other of shady business practices.
Lauder testified angrily before the U.S. Congress and placed full-page ads in The New York Times and the Washington Post attacking Prague's indifference. The ads were published to coincide with a visit by Prime Minister Milos Zeman to the United States. Zelezny, meanwhile, used the airwaves he controlled to strike back.
Czech officials demanded an apology from Lauder while looking for ways to appease him. At one point, a plan to find a way to offer him the country's other private TV station, TV Prima, was discussed.
"It is necessary to try everything and to determine whether it is possible to find a conciliatory solution which would be advantageous as well for the Czech Republic," Foreign Minister Jan Kavan said last year.
CME blames the Nova debacle for scuttling a $600 million merger in the works with Luxembourg-based SBS Corp., and for weakening the value of CME's shares, which once traded at a high of $30 and have since been delisted.
The next step
Zelezny has said he will abide by the $27 million ruling, but that he needs five to seven weeks to obtain the cash.
"No one in this country has 1.5 billion Kc in cash," he said this week.
Many wonder if Zelezny hasn't already squirreled away many of his assets. The villa with the piano, for instance, belongs to his ex-wife Marta Zelezna, according to a local French mayor.
But Zelezna told a Czech daily that the chateau was actually in the hands of the Langourian foundation which she had established in France.
Other media reports say Zelezny has moved many of his assets -- including a valuable collection of Czech modern art -- into companies and foundations that are now in the hands of lawyers and friends.
"We have no idea how much he is worth," Donath said. "Right now, we're concerned about damage control. If he pays us, we won't have any issue with his property."
Fred Klinkhammer, CME general director, said if the money isn't handed over to CME soon, the Czech government will be forced to guarantee payment. He also pointed out that the total rises by $3,200 each day Zelezny doesn't pay.
As the battle rages, both partners push ahead with their television ambitions. Zelezny said Nova needs to make costly investments in multimedia and digital broadcasting, and was searching for a major foreign partner.
CME, meanwhile, wants a new path on to the country's airwaves, and is still seeking a strong partner with a broadcast license.
But it's not easy, Donath said.
"CME feels it is not really welcome in the Czech Republic."
-- Eric Johnson contributed to this report.
Staci Semrad may be reached at ssemrad@praguepost.cz
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